Which of the following is true for a project with an expected net present value of $200,000?
A)The project is clearly unacceptable.
B)The project's cash flows exceed the project's net investment by $200,000 annually.
C)The project is expected to increase firm value by $200,000 in future value terms.
D)The project is expected to increase firm value by $200,000 in present value terms.

Question

Quizplus · Accepted Answer

The net present value measures the present value of the project's expected cash inflows minus the present value of its expected cash outflows. Therefore, a net present value of $200,000 means that the project is expected to increase firm value by $200,000 in present value terms. Choice A is incorrect because a positive net present value indicates that the project is acceptable. Choice B is not necessarily true because the cash flows and net investment could differ in amount and timing. Choice C is incorrect because the $200,000 increase in firm value is stated in future value terms rather than present value terms.

Which of the Following Is True for a Project with an Expected